Phones 4u Ltd v EE Ltd

A party seeking loss of bargain damages for repudiatory breach or renunciation must show that the contract was terminated in exercise of the common-law right arising from that breach. A contractual termination right arising independently of breach cannot be retrospectively recharacterised as a common-law termination for breach merely because a repudiatory breach existed at the time.

The termination communication must objectively convey that the contract is being terminated for the repudiation relied upon. An express reservation of rights preserves a possible claim for pre-termination breach, but does not amount to exercise of the reserved right. The issue may be determined summarily where the contractual notice and relevant facts are clear and the point is decisive.

Phones 4u Ltd, which was in administration, claimed against EE Ltd under agreements governing the sale of EE mobile services. EE counterclaimed for loss of bargain damages, alleging that Phones 4u had committed repudiatory breaches or had renounced the agreements by ceasing trading.

EE had terminated under an express contractual provision triggered by the appointment of administrators. Its notice stated that termination was pursuant to that provision, reserved all rights and referred to no breach or renunciation. Phones 4u applied under CPR Part 24 for summary judgment dismissing the counterclaim. The central issue was whether EE could maintain a common-law loss of bargain claim when it had expressly terminated under a contractual right independent of breach.

1. Summary judgment granted. EE’s primary counterclaim for loss of bargain damages was dismissed. Permission to amend the counterclaim was refused.
2. For present purposes, EE was entitled to rely on the alleged Key Obligation and PAYG Obligation. It therefore had a realistic prospect of establishing actual breach during the period in which Phones 4u ceased trading. Whether the cessation was likely to continue sufficiently to constitute repudiatory breach was fact-sensitive and unsuitable for summary determination.
3. Renunciation required a clear, absolute and unequivocal communication or course of conduct showing an intention not to perform the contract. The pleaded case appeared weak, but it was unnecessary to determine it finally.
4. The cause of action for loss of bargain damages was damages for repudiatory breach or renunciation. Except where the loss of the bargain occurred independently of any election, causation required the innocent party to choose to treat itself as discharged and communicate that choice clearly and unequivocally, following Vitol SA v Norelf Ltd (The Santa Clara) [1996] AC 800.
5. EE’s notice unequivocally terminated the agreements only under clause 14.1.2. That right arose independently of breach. The notice did not identify breach or renunciation as the reason for termination. Its reservation of rights preserved possible remedies for earlier breach, but did not exercise the common-law right to terminate for breach.
6. The court applied the reasoning in Leofelis SA v Lonsdale Sports Ltd [2012] EWCA Civ 985 and approved the analysis in Dalkia Utilities Services plc v Celtech International Ltd [2006] EWHC 63 (Comm). EE could not retrospectively re-characterise the termination or assert that it had accepted a renunciation when it had not done so.